(OPE-L) A Recovery for Profits, but Not for Workers By LOUIS UCHITELLE

From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Sun Dec 21 2003 - 01:41:24 EST


December 21, 2003

A Recovery for Profits, but Not for Workers

HIS economic recovery is distinctly unkind to workers.

Output is clearly rising, and, normally, that would feed into both
corporate profits and labor income. But while profits have shot up as
a percentage of national income, reaching their highest level since
the mid-1960's, labor's share is shrinking. Not since World War II
has the distribution been so lopsided in the aftermath of a recession.

Profits, it turns out, never stopped rising as a share of national
income all through the 2001 recession and the months afterward of
weak economic growth. That did not change even as the recovery kicked
in strongly last summer and hiring resumed. New data from the Bureau
of Economic Analysis erases all doubt on this point.

The reasons for labor's poor showing are not hard to spot. The
employment rolls are still smaller, by 2.4 million jobs, than they
were at the recession's start in March 2001. Those who are employed
are also feeling the squeeze, particularly the 85 million people who
hold office or factory jobs below the rank of supervisor or manager.
Their average hourly wage, $15.46, is up only 3 cents since July,
according to the Bureau of Labor Statistics. That wage is rising at
an annual rate of less than 2 percent, barely enough to keep up with
inflation, mild as it now is.

"We have never seen in the 40 years that we have this hourly wage
survey, wage growth that has been this slow,'' said Dean Baker, an
economist at the Center for Economic and Policy Research.

That is unfortunate. Workers, after all, are also the nation's
consumers. We are counting on their spending to turn the recovery
into a first-class expansion. They must do that against the dead
weight of reluctant hiring and miserly raises. The workers themselves
are helpless to change this. For a generation, we have permitted
labor's bargaining power to deteriorate. Successive administrations -
Republican and Democratic - have abetted the deterioration. Only in
vigorous booms, like that of the late 1990's, have workers been in
enough demand to give them bargaining power.

The productivity saga highlights the deterioration. From the end of
World War II until the late 1960's, productivity rose at a handsome
pace. As the output of goods and services increased for each hour
worked, the additional revenue flowed steadily into corporate profits
and labor income. Then, as the productivity growth rate slowed,
profits took the first hit, falling as low as 25 percent of total
national income in the early 70's, according to a net profit measure
constructed from government data by Edward N. Wolff, a New York
University economist. His measure includes not only standard net
income, but also profit from self-employment, rent and interest.

While profits' share of national income declined, labor's share held
up. Its bargaining power in the 1970's, and even into the 80's, was
still strong enough to sustain wage gains. The alternative -
outsourcing abroad or substituting foreign merchandise for domestic
products - was just beginning to materialize. We all know how weak
labor soon became. Globalization, deregulation, declining union
membership, a stagnant minimum wage and incessant layoffs took their
toll. And as labor weakened, the profit share of national income

THE consequences are hitting home. When the productivity growth rate
revived in the mid-1990's and accelerated in recent years, many
forecasters thought that the revenue from rising output per worker
would again be channeled to labor as well as to profits. But the
productivity improvement came in a strange way. Rather than
increasing output per worker, many companies maintained existing
output and raised the productivity growth rate by getting rid of
workers. Labor had grown too weak to prevent many companies from
pocketing virtually all the gains from productivity - or, as Mr.
Wolff put it, "Labor is a forgotten part of this economy.''

His measure shows that pretax profits skyrocketed in the third
quarter, to nearly 30 percent of national income, at an annual rate,
from 27 percent in the first quarter of 2001. And this despite the
rising costs of health insurance, pensions and exercised stock
options, all counted as labor income.

The gorging on profits strains the recovery. Forecasters count on
consumer spending to keep the expansion going. So far, consumers have
performed admirably, drawing on mortgage refinancing, tax rebates and
heavy borrowing at low interest rates to pay their bills. Once these
resources run out - and they are running out - rising labor income
must fill the gap.

Unless the supply-siders are right. They hold to the view that robust
business spending on capital goods can lead the way, generating
consumer spending in its wake. This recovery, more than others in
recent decades, is testing that doubtful thesis.

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